Barrons discusses smaller oil outfits, saying that it pays to be technologically clever in the energy business. In what is becoming a race to replace rapidly depleting oil and gas reserves, technology is increasingly playing a decisive role. "The easy oil is gone; the next barrel is always going to require more technology to extract," says Geoff Kieburtz, of Citigroup. Smaller outfits may reap bigger gains from technology than the oil majors. Shares of Devon Energy (DVN) and EOG Resources (EOG), for instance, each could spurt by at least 10%. Others mentioned include APA, SLB and WFT.
Barron’s highlights Affordable Residential Communities (ARC), saying that one analyst thinks the company is worth $15 a share, more than 50% above the amount that Farallon Capital Management is offering.
Lawson Software (LWSN) shares have already recovered some lost ground, but at least one analyst thinks they have the potential to rise more than 50% beyond their recent levels.
If Jones Soda (JSDA) were to trade for 20x earnings, just above the industry norm, its shares would be valued at 7, not today's 21.50. Jones' founder and CEO, Peter van Stolk, tells Barron's he's not interested in selling the co. But van Stolk and other insiders have taken advantage of the stock's run-up to sell shares in recent mo’s. So, too, has Thomas Barry of the Bjuman Barry Small Cap Growth Fund, which unloaded its entire 1-million-share stake earlier this year. "I'd be nervous buying the stock at these P/E levels with the earnings and rev they've had," says Barry.
“The Trader” column discusses steakhouses, saying that several things must happen before steakhouses rebound. Rising beef costs must moderate, and you'd catch the first whiff of that in cattle futures. Consumer spending should improve as the housing mkt stabilizes and as gas prices drop, but these will likely be signaled by an upturn in retailers' forecast. Shares of Rare Hospitality (RARE) are off 13% this year. Morton’s Restaurants (MRT) have slipped 19% since late-Feb while Ruth’s Chris Steak House (RUTH) has declined 16%. But what smells like a buying opportunity may remain a deceptive scent for some time yet. Until then, steakhouses can hike prices (and risk losing customers), or swallow the higher costs (and risk losing profits). Stockholders can hope for buyout offers.
“The Trader“ highlights OptionsXpress (OXPS), whose shares have skidded more than 20% since Nov. Lately, however, the murmur on OptionsXpress has grown dark and ominous. Success has invited competition from both upstarts and larger firms muscling in on its turf, making it tougher to snag new customers. The cost of attracting each new account had more than doubled over the past year. And as the US contemplates trading options in penny increments, exchanges and mkt makers squeezed by narrower spreads are threatening to cut back on payments to brokerages for steering customer orders their way. These payments make up 15% of co's rev. Sensing the end of the line, growth investors have disembarked, and OptionsXpress might have continued its slide if not for a whiff of takeover speculation last week.
“The Trader” also recommends a option strategy for investors. "Collars" allow conservative investors to participate in rallies up to a certain tgt but limit downside risk should the mkt slide. You accomplish this by selling OTM calls and using the proceeds to buy protective puts. Given the mkt's upward bias, call prices have become rich. And collars "are most attractive when potential gains under the collar substantially exceed potential losses," says Thomas Schwab of Summit Portfolio Advisors. Take Apple (AAPL), for example. With shares near 112.50, selling a 130-strike call that expires Jan’09 can generate enough to buy a 110 put of similar duration. That allows investors to participate in a rally up to 130 but protects against declines below 110. Schwab screened for other stocks with lopsided call-to-put prices. Those include AMGN, NEM, BEN, COP, LTD and SPY.
Barron’s discusses Xinhua Finance (XFML), saying that last year, the co put some businesses into its media subsidiary. First, however, it passed some of them through just-created entities that were owned by insiders and by Chinese corporations. Whatever other purpose this arrangement served, it had the effect of enriching insiders and "stepping up" the value of those assets when they finally reached Xinhua Finance Media's balance sheet. By passing a television business through a entity called Upper Step, the prospectus shows, Xinhua gave $19m to ex-CFO Shelly Singhal and a long-time business partner of Bush's named Dennis L. Pelino. The co says that Singhal became the "full-time" CFO of Xinhua Finance last Sep. But SEC filings show him continuing his SBI investment banking business for several small co’s right up through his resignation this month. The prospectus also mentions a deal under which Xinhua referred Chinese credit unions to Singhal's investment consulting firm Brightline Capital, in exchange for $2.8 million in commissions. While Singhal's major role in Xinhua Finance might trouble investors even after his departure, the company is still run by officers and directors with unsettling histories. Just last week, Xinhua Finance tapped as its financial chief David C. Wang, a fellow who's followed Singhal throughout his career. Three "independent" directors overseeing good governance at Xinhua Finance, or its US-listed sub, all came from Stonepath - a co now facing involuntary bankruptcy after 3 successive financial restatements. Suffice it to say that this Chinese firm is still surrounded by red flags, and in this case, they probably don't connote good luck.
“Technology Trader” takes on Syntax-Brillin (BRLC) that struggled to bring off a $125m follow-on offering of stock last Wed. The co has had negative cash flow from operations totaling $90m in the past 6 qrtrs, so it desperately needed last week's cash. CEO Vincent F. Sollitto Jr. says the co's cash needs reflect its fast growth, with sales up 350% in the MarQ. At $6.30 a share, the mkt values the co at half a billion bucks. What's wrong with this picture? Investors have wondered whether the TV maker shows gross profits only b/c its cost of goods sold has been reduced with rebates from Taiwan Kolin, the contract manufacturer for most of the co's TVs. Many institutions pitched for last week's offering were spooked by a recent report from the accounting analysts at the Center for Financial Research and Analysis, which said that without Kolin's $165m of credits since Dec’05, Syntax-Brillian would've had a negative gross profit of almost $64m. And that's before operating expenses. Why is Kolin so generously helping Syntax-Brillian plump its results? Kolin and its affiliates are Syntax-Brillian's largest shareholders, with an 11% stake before last week's deal. Kolin sold $5m worth of that stock in the offering, and it's registered to be able to sell half of its remaining stake after a 90-day lockup. It may make better profits on the stock than on the TVs.
“Technology Trader” also negative on Open Text (OTEX). Near 23 last week, investors are valuing the co at $1.4bn. That's 45x the annualized quarterly earnings of the co's best historical quarter. License sales have gotten worse, not better. Since acquiring Hummingbird last Oct, Open Text hasn't disclosed sales for Hummingbird products. But on conference calls, the co says Hummingbird sales are down 20% since the acquisition. Applying that guidance, calculations show that licenses for Open Text's other products have fallen, too. But Open Text's continuing business challenges, and its perpetually squirrelly accounting, leave wondering about that bubbly valuation.
“Plugged In” section reprots that Sybase (SY) could be waiting in the wings to snare Openwave (OPWV). That's the word on the street as Openwave shareholders anxiously await a buyout for the mismanaged mobile-communications-software concern. Sybase emerged as a leading suitor for the outfit last week. The news surfaced after Openwave's largest independent shareholder, Harbinger Capital Partners, offered to take a majority stake in Openwave, through an unsolicited cash bid of $8.30, with a potential dividend sweetener. Sybase isn't the only interested party. Oracle (ORCL) is also said to have performed due diligence, but hasn't made a formal offer. Other potential buyers that may have been kicking the tires include IBM (IBM), H-P (HPQ) and Siemens (SI).